Steel prices unlikely to cool off despite source tax cut

The cut in source tax in the proposed budget may not bring down the price of steel, meaning the cost of infrastructure and construction projects is unlikely to decline, manufacturers say.

In the budget for the next fiscal year, Finance Minister AHM Mustafa Kamal has proposed to reduce the tax deducted at source on the supply of iron and iron products from 3 per cent to 2 per cent.

Steel prices jumped 34 per cent in the last year as millers were compelled to hike the rates in the wake of spiralling scrap prices in the global market, making the construction of public projects and home building costlier.

The retail price of 60-grade mild-steel rod rose to Tk 74,000 per tonne, up from Tk 54,000 just 14 months ago, data from the state-run Trading Corporation of Bangladesh showed.

The price of steel scraps has increased by $260 per tonne in the international markets recently, said Tapan Sengupta, deputy managing director of BSRM, the largest steelmaker in Bangladesh.

Scrap is selling at $530 per tonne currently. It was $270 per tonne in April 2020.

"The impact of the 1 per cent cut in the source tax on steel will not be felt at the consumer level. The cost of infrastructure and construction projects will not fall," said Sengupta.

The average production cost of steel products is Tk 72,000 per tonne.

The government can reduce steel price by cutting the import duty to Tk 500 per tonne from the existing Tk 1,500 and withdrawing the Tk 2,000 value-added tax, Sengupta said.

Another way is bringing down the advance income tax to Tk 200 per tonne from the existing Tk 500 during the release of the raw materials from ports.

Md Shahidullah, secretary-general of the Bangladesh Steel Manufacturers Association and managing director of Metrocem Steel, said the government had thought that the cut in the tax at source would lower the price of steel to some extent and reduce the cost of infrastructure and construction projects.

The steel price has increased as melted steel has become costlier in the international market in the last year, he said.

India, China, and the US use melted steel as raw materials to manufacture steel products. Earlier, manufacturers would produce steel from iron ores.

Now Chinese steelmakers use scrap steel to make the finished products. India has withdrawn the duty on scrap import to save the steel industry.

So, there is no possibility for the steel price to go down, Shahidullah said.

The shipping cost has risen to $3,600 per container, way higher than $1,200 a year ago. A container can carry 26 tonnes of scrap steel.

In Bangladesh, 90 per cent of the raw materials for steel products are imported from the US, Canada, Italy, the UK, and Australia.

Bangladesh imports 45 lakh tonnes of scrap steel annually. Another 10 lakh tonnes is collected locally.

There are about 40 active manufacturers with a combined capacity to produce nine million tonnes of steel a year.

Mohammed Mohsin, vice chairman of PHP Family, feared the steel price might go up further in the future due to the scarcity of scrap steel globally.

He said scrap steel production had decreased in Japan and other countries. The automobile industry is a major source of the key raw material.

Now, millers are using the raw materials that were imported earlier. But they will have to import costlier raw materials.

"So, the price of steel will not come down immediately in the local market," Mohsin said.